Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Maria Teresa Punzi
Effectiveness of macroprudential policies under borrower heterogeneity
() and Katrin Rabitsch
Abstract: We study the impact of macroprudential policies using a
novel model which takes into account households’ ability to borrow under
different loan-to-value ratios which are tied to their collateral values.
Such model generates a larger amplification in real and financial
variables, compared to standard models that assume homogeneity in the
leveraging and deleveraging process. Conditional on this model, we consider
the implications of macroprudential policies that aim to lean against an
excessive credit cycle. In particular, we allow macroprudential authorities
to tighten excessive lending to higher leveraged households, whose
riskiness had been evaluated too optimistically. We find that a policy that
targets only the group of households that most strongly deleveraged after
an adverse idiosyncratic housing investment risk shock, is
welfare-improving at social and individual levels, relative to a
macroprudential policy which targets all households in the economy.
Keywords: Endogenous Loan-to-Value ratio, Heterogeneity, Macroprudential Policy; (follow links to similar papers)
JEL-Codes: E23,; E32,; E44; (follow links to similar papers)
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